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COPY.
“LM, HORRIGAN
2IOFEB 11 PH 2:5i
Suivi? COUNTY
CLERK OF COURTSN THE COURT OF COMMON PLEAS
COUNTY OF SUMMIT
GEAUGA SAVINGS BANK ) CASE NO. CV 2008-08-5526
)
Plaintiff ) JUDGE PARKER
-vS- )
)
ROY SHILTS, et al., ) ORDER
) (Final and Appealable)
Defendants )
L THE FILINGS
This matter is before the court on a variety of filings, which the court will list as titled
by the parties: 1) Defendant/Cross-Claimant Superior Paving’s Motion for Summary
Judgment (Partial); 2) Response to Motion for Summary Judgment and Plaintiff's Motion for
Summary Judgment (Partial); 3) Defendant Cross-Claimant Superior Paving’s Reply to
Plaintiff's Response to Motion for Summary Judgment (Partial) and Response to Plaintiff's
Motion for Summary Judgment (Partial); Response to Motion for Summary Judgment of
Superior Paving, (Filed by Defendants, Russell Simms, Inez Simms, and Jerry Simms); 4)
Defendant/ Cross Claimant Superior Paving’s Reply to the Response to Motion for Summary
Judgment (Partial) Filed by Russell Simms, et al.; 5) Third-Party Defendant GreenPoint
Mortgage Funding, Inc.’s Brief in Opposition to Superior Paving & Material, Inc.’s Motion
for Summary Judgment (Partial); 6) Third-Party defendant GreenPoint Mortgage Funding,
Inc.’s Cross-Motion for Summary Judgment (Partial); and 7) Defendant/Cross-Claimant
Superior Paving’s Reply to GreenPoint’s Response to Motion for Summary Judgment
(Partial) and Response to GreenPoint’s Cross-Motion for Summary Judgment (Partial).COPY.
I, THe Dispute
The core question before the court is, which party has lien priority? GreenPoint
claims to have priority under the “first in time, first in right” rule of R.C. §5301.23, under
RC. §1311.14 because its mortgage is a construction mortgage, and under the doctrine of
equitable subrogation. Superior claims to have priority, having filed its affidavit for a
mechanic’s lien and having served that affidavit upon the owners under R.C. §§1311.06 &
1311.07. Geauga claims that it has priority, asserting that it holds a mortgage lien because
under R.C. §1311.14, a construction loan enjoys priority over a mechanic’s lien. The Simms
group asserts an equitable mortgage interest in the property as described in their deed.
III, THE CHRONICLE OF EVENTS
In June of 2002, defendant, Roy Shilts, purchased property in the city of Green from
the Simms that he wished to develop into the Neptune Drive Extension Allotment. The
transfer was made by way of a warranty deed dated June 12, 2002. Only the deed was
recorded. There was no mortgage filed despite an apparent agreement reached between the
parties that such would be accomplished. The property was then subdivided into 12 lots.
On November 2, 2002, Shilts borrowed money from and granted a first mortgage on
the portion of the property known as Lot 11 to defendant Eckman in the amount of $150,000."
On April 26, 2004, Shilts granted a second mortgage to Eckman in the amount of $115,000.
On June 29, 2004, a final plat for the development of the Neptune Drive Extension project
was recorded. On October 13, 2005, Shilts contracted with Superior for the installation of
roads, ditches, storm sewer systems, and other related site work. On November 7, 2005,
Superior began its work pursuant to the contract. Superior’s work, which became intermittent
' Eckman was originally named in Superior’s third-party complaint. His estate answered and filed a
counterclaim and cross-claims, but later disclaimed any interest in the property.
2COPY.
due to a variety of factors, including weather and non-payment, was completed on August 16,
2007.
In February 2006, Shilts conveyed Lot 11 to himself and his wife, Darla Shilts. On
February 10, they granted a mortgage to GreenPoint to secure amount of a $109,600 loan they
received from GreenPoint. At closing, $30,000 of those proceeds was used to pay off
Eckman’s prior interest in the lot. GreenPoint filed its mortgage on February 14, 2006, and
again on February 17, 2006. At some point, Shilts defaulted on the GreenPoint loan.
On September 8, 2006, Geauga and Shilts entered into what Geauga describes as a
construction loan agreement in connection with Lot 3. Shilts signed a promissory note for
$171,000. To secure the loan, Geauga filed a mortgage on the property on September 13,
2006. Between October 17, 2006 and September 14, 2007, Geauga disbursed funds at the
request of Shilts. However at some point in time, Shilts defaulted on the Geauga loan.
By October 4, 2007, Shilts had not paid Superior for the work it had completed, so
Superior filed its affidavit for a mechanic’s lien. On October 5, 2007, Superior served Shilts
with a copy of the lien affidavit by certified mail. Properties included in the lien affidavit
included, but were not limited to, Lot 3 and Lot 11, which are at the heart of the present
dispute.
On August 6, 2008, Geauga filed its foreclosure action against the Shiltses. It also
named several other parties due to interests they may have held in Lot 3. Superior was one of
those parties. Superior then added several other parties by way of third-party claims
(including GreenPoint, which held an interest in Lot 11), asserting an interest in each of the
12 lots of the Neptune Drive Extension project.COPY.
Ik
THE APPLICABLE STATUTES
R.C. §1311.03 provides:
Any person who performs labor or work or furnishes material, for the
construction, alteration, or repair of any street, turnpike, road, sidewalk, way,
drain, ditch, or sewer by virtue of a private contract between the person and
the owner, part owner, or lessee of lands upon which the same may be
constructed, altered, or repaired, or of lands abutting thereon, or as
subcontractor, laborer, or material supplier, performs labor or work or
furnishes material to such original contractor or to any subcontractor in
carrying forward or completing such contract, has a lien for the payment
thereof against the lands of the owner, part owner, or lessee, upon which the
street, turnpike, road, sidewalk, way, drain, or sewer is constructed or upon
which any such street, turnpike, road, sidewalk, way, drain, ditch, or sewer
abuts, as provided in section 1311.02 of the Revised Code.
RC. §1311.06 provides in pertinent part:
(A) Any person, or his agent, who wishes to avail himself of sections 1311.01
to 1311.22 of the Revised Code, shall make and file for record in the office of
the county recorder in the counties in which the improved property is located,
an affidavit showing the amount due over and above all legal setoffs, a
description of the property to be charged with the lien, the name and address
of the person to or for whom the labor or work was performed or material was
furnished, the name of the owner, part owner, or lessee, if known, the name
and address of the lien claimant, and the first and last dates that the lien
claimant performed any labor or work or furnished any material to the
improvement giving rise to his lien.
(B) The affidavit shall be filed within one of the following periods:
(2) Ifthe lien arises under section 1311.021 of the Revised Code, within one
hundred twenty days from the date on which the last labor or work was
performed or material was furnished by the person claiming the lien.
R.C. §1311.07 provides in part:
Any person filing an affidavit pursuant to section 1311.06 of the Revised Code
shall serve a copy of the affidavit on the owner, part owner, or lessee of the
improved property or his designee, within thirty days after filing the affidavit.
RC. §1311.13(A)(1) provides:
All liens under sections 1311.01 to 1311.22 of the Revised Code for labor or
work performed or materials furnished to the same improvement prior to the
recording of the notice of commencement pursuant to section 1311.04 of the
Revised Code are effective from the date the first visible work or labor is
performed or the first materials are furnished by the first original contractor,
subcontractor, material supplier, or laborer to work, labor on, or provide
materials to the improvement.
4I<
on November 7, 2005, Superior claims first priority to proceeds of the impending foreclosure
sale. Having provided funds to Shilts, $30,000 of which was used to pay off Eckman’s claims
against Lot 11, and having filed its mortgage twice in February of 2006, GreenPoint claims
RC. §1311.13(E)(2) provides:
Liens recorded by laborers which have an effective date described in division
(A)(1) or (3) of this section shall be preferred to all other titles, liens, or
encumbrances which may attach to or upon the improvement or to or upon the
land upon which it is situated which are given or recorded subsequent to the
effective date of such laborers’ liens.
R.. §1311.14(A) provides in part:
Except as provided in this section, the lien of a mortgage given in whole or in
part to improve real estate, or to pay off prior encumbrances thereon, or both,
the proceeds of which are actually used in the improvement in the manner
contemplated in sections 1311.02 and 1311.03 of the Revised Code, or to pay
off prior encumbrances, or both, and which mortgage contains therein the
correct name and address of the mortgagee, together with a covenant between
the mortgagor and mortgagee authorizing the mortgagee to do all things
provided to be done by the mortgagee under this section, shall be prior to all
mechanic’s, material supplier’s, and similar liens and all liens provided for in
this chapter that are filed for record after the improvement mortgage is filed for
record, to the extent that the proceeds thereof are used and applied for the
purposes of and pursuant to this section. Such mortgage is a lien on the
premises therein described from the time it is filed for record for the full
amount that is ultimately and actually paid out under the mortgage, regardless
of the time when the money secured thereby is advanced.
R.C. §1311.14(C) provides in part:
This section, as to mortgages contemplated by this section, controls over all
other sections of the Revised Code relating to mechanic’s, material supplier’s,
contractor’s, subcontractor’s, laborer’s, and all liens that can be had under this
chapter, and shall be liberally construed in favor of such mortgagees, a
substantial compliance by such mortgagees being sufficient.
WHO’s ON First?
Having begun work to install the street, ditches, storm sewers, and other infrastructure
priority. Having provided funds for a construction loan on Lot 3 and having filed its
mortgage on September 13, 2006, Geauga claims priority over Superior.COPY
Geauga argues that the specific language of R.C. §1311.14(C) places it ahead of
Superior. That section, titled “Priority of mortgage lien,” addresses mortgage liens and
mechanic’s liens in situations under which materialmen, contractors, or sub-contractors have
provided services and are expecting payment from the mortgagee for work they have
performed in improving a property. Whether work has begun or not, the mortgagee is granted
first priority under this special statutory lien. Of particular interest to the court is that the
language of this section limits its application to “mortgages contemplated by this section.”
Those mortgages, “given in whole or in part to improve real estate, or to pay off prior
encumbrances thereon, or both, ***, shall be prior to all mechanic’s, material supplier’s, and
similar liens and all liens provided for in this chapter that are filed for record after the
improvement mortgage is filed for record, to the extent that the proceeds thereof are used and
applied for the purposes of and pursuant to this section. Such mortgage is a lien on the
premises therein described from the time it is filed for record for the full amount that is
ultimately and actually paid out under the mortgage, regardless of the time when the money
secured thereby is advanced.” (Emphasis added.) This language indicates that all liens
provided in Chapter 1311 are junior to the mortgage lien if they are filed after the mortgage
lien and if they are used to pay materialmen, contractors, or subcontractors which have
provided work performed under contracts that are to be paid out of the proceeds secured by
the mortgage. Such is not the situation in the present case.
Here, Superior began its work of installing the street, ditches, storm sewers, and
other infrastructure for the allotment. Superior undertook this work before Geauga contracted
with Shilts in connecton with a house to be built on Lot 3. It is clear from Geauga’s summary
judgment affidavit that Geauga disbursed funds at Shilts’ request in connection with the
conctruction of that house on Lot 3. Had the mechanics’s lien in question in this matter beenCOPY
filed by one of the materialmen, contractors, or subcontractors that provided work on that job,
such liens would indeed be junior to that of Geauga’s mortgage lien. However, Superior’s
work was in no way related to Geauga or its mortgage.
Further, the fact that Superior filed its lien after Geauga filed its lien does not defeat
Superior’s claim. “R.C. 1311.13(A)(1) provides: ‘Liens * * * for labor or work performed or
materials furnished prior to the recording of the notice of commencement pursuant to section
1311.04 of the Revised Code are effective from the date the first visible work or labor is
performed or the first materials are furnished by the original contractor, subcontractor,
materialman, or laborer at the site of the improvement.’ (Emphasis added in original). The
mechanics' liens thus attach at the time of such commencement of construction, the same as
mortgage liens 'take effect! from the date of filing * * *. Wayne Bldg. & Loan v. Yarborough,
(1967), 11 Ohio St.2d 195, 217, 40 0.0.2d 182, 196, 228 N.E.2d 841, 856. R.C. 1311.13(B)
gives such mechanic's liens priority over "all other titles, liens or encumbrances" which may
attach to the subject of the mechanics' labor and are recorded after ‘construction, excavation
or improvement’ is commenced.” Schalmo Builders v. Malz, 90 Ohio App. 3d 321, 323-324,
629 N.E.2d 52.
Under R.C. §1311.13(A)(1), Superior’s mechanic’s lien was effective as of November
7, 2005, when it began its work under its contract with Shilts. Therefore, Geauga’s mortgage
lien securing loan proceeds for construction of a home on Lot 3, which became effective on
its filing date of September 13, 2006 is junior to that of Superior, which was filed and served
on Shilts on October 4, 2007 and October 5, 2007, respectively, and which was effective as of
the date of Superior’s first work on November 7, 2005.
2 Mr. Shilts mentioned in a pretrial on November 2, 2009, and Geauga argues in passing that Superior’s lien
cannot apply to the contract for work begun in November of 2005 due to a break in performance and a
subsequent arrangement entered to complete the work. There is no Civ.R. 56 evidence before the court to
7COPY
Therefore, with respect to Geauga’s mortgage lien, Superior is on first.
VIL WHAT’s ON SECOND?
Having determined priority between Superior and Geauga, the court now turns to its
examination of Superior’s mechanic’s lien v. GreenPoint’s mortgage lien. These two parties
have agreed that the $30,000 paid to the estate of Eckman at the closing of the loan from
GreenPoint to Shilts in connection with Lot 11 has priority because the Eckman lien predated
Superior’s work. Therefore, $30,000 of GreenPoint’s lien is ahead of Superior’s and is now
on first. But what is on second?
As discussed above, Superior’s lien became effective on November 7, 2005, which is
three months before the GreenPoint mortgage lien was filed in connection with a loan for
construction on Lot 11. Therefore, for reasons stated above, under R.C. §1311.13(A)(1),
Superior’s lien has priority over GreenPoint’s remaining balance of $79,600.
The first $30,000 of GreenPoint’s mortgage lien is on first; Superior’s $85, 895.63
mechanic’s lien is on second.
VIL, THE FINAL LINE-UP
The remaining task is to juxtapose and order Geauga’s claim with GreenPoint’s and
Superior’s. This is simply a matter of determining which came first in time.
Under R.C. §5301.23, the first mortgage presented for filing is given first priority.
Here, GreenPoint filed its mortgage on February 14, 2006, and again on February 17, 2006.
Geauga filed a mortgage on September 13, 2006. Therefore, as it came first in time,
GreenPoint’s mortgage is first in right, and has priority over Geauga’s.
support this claim. The court has determined as a matter of law that Superior’s work, although interrupted
before it was finished, was completed under the one original contract.
8COPY
The court notes that as a matter of practical concern, if the street had not been
constructed, it is highly unlikely that the city of Green would have allowed permits to issue
for the construction contemplated by the two mortgage loans at the heart of this matter.
Geauga claims that because Superior did not claim to have worked on a component part of the
Lot 3 property itself, it did no visible work to improve the property. It claims that without
such an assertion, it cannot be entitled to priority under its mechanic’s lien. Such an assertion
is without basis. The street certainly provided a tangible benefit not only to Lot 3, but also to
the remaining properties on the street, as without the street, there would be no development,
and without a development there would be no houses. Without houses, there would be no
loans, and without loans, there would be no mortgages. Without mortgages, there would be
no mortgage liens, and without mortgage liens, there would be no issues of priority. Simply
put, Geauga cannot receive a benefit at the peril of Superior, without the work of which,
Geauga’s claim would not exist.
The final line-up in order of priority for purposes of the summary judgments before
the court is as follows:
1) GreenPoint’s mortgage lien in the amount of $30,000.
2) Superior’s mechanic’s lien in the amount of $85, 895.63.
3) The remainder of GreenPoint’s mortgage lien.
4) Geauga’s Mortgage lien.
The Simms’ claim for an equitable mortgage in the property is unsupported by Civ.R.
56 evidence. Accordingly, their opposition to Superior’s summary judgment motion is
without merit.COPY
Therefore, the court DENIES Geauga’s motion for summary judgment. The court
GRANTS Superior’s motion for summary judgment in part — as to Superior’s claim for
priority over Geauga. The court DENIES Superior’s motion for summary judgment as to the
first $30,000 of GreenPoint’s mortgage lien. The court GRANTS Superior’s motion in part
—as to GreenPoint’s remaining mortgage lien. The court GRANTS GreenPoint’s cross-
motion for summary judgment in part — as to the first $30,000 of GreenPoint’s mortgage lien
and DENIES the motion in part — as to the remainder of GreenPoint’s mortgage lien.
There is no just cause for delay.
IT IS SO ORDERED.
cc: Attorney Anthony A. Cox
Attorneys Nada G. Faddoul & John P. Susany
Unknown Tenants, Lessees, Occupants, 463 Neptune Drive, Uniontown, Ohio 44685
Attorney Philip D. Schandel
Chase Bank USA, N. A., 3700 Wiseman Blvd., San Antonio, Texas 78251
MERS, as Nominee for GreenPoint Mortgage Funding, Inc., P.O. Box 2026, Flint, MI 485
Attorney Jamie R. Minor
Attorney David P. Weimer
Beneficial Ohio, Inc., 841 Seahawk Circle, P.O. Box 8546, Virginia Beach, VA 23452
Attorney John M. Herrnstein
Assistant Attorney General Joseph T. Chapman
Attorney Jeffrey W. Gallup
WW:lIcb
08-5526f
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